Market Update

UK Inflation hit 6.2%, a 30 year high. The main contributors to inflation rising were a surge in prices of Fuel and food. Household Energy bills have increased by 25% by a year ago and forecasts suggest inflation is on the path to hitting 10% in the coming months.

Historically GBP would usually strengthen against major currencies off the back of high inflation, mainly because it would indicate the need for Rate Hikes to bring inflation under control. But with The Bank of England already doing 3 hikes back-to-back this year, the predicament is simple. With costs soaring, how many rate hikes can you afford to do before it has a detrimental effect on the public and their ability to spend.

The release of the spring budget brought mixed reactions, with a fuel duty cut of 5p per litre and an increase in the national insurance threshold. Meaning anyone earning less than £12,570 wouldn’t need to contribute to national insurance. This is seen as one way of combating ever increasing pressure on households throughout the UK.

After The Fed Reserve raised rates for the first-time last week since the pandemic, there has been constant talk of a need to be more aggressive in their upcoming meetings. Several Fed Reserve members are now giving serious weight behind 50 bps hikes in several meetings before the end of 2022, with the view of getting their Interest Rates back at 2% sooner rather than later.

Throughout today, PMI data will be released for Europe, The UK & The U.S. Expectations suggest all releases will be weaker than previous as we start to see the real economic fallout from Russia’s invasion of Ukraine.

Oil prices are trading higher back above $114 due to supply disruptions delivering oil from Russia and Kazakhstan. Stagflation, the one word to describe the state of the economy both here in the UK as well as the U.S and possibly wider.

We’re experiencing low growth across the board whilst inflation prints are coming in higher and higher with no telling where the peak could be. Commodities thrive in these conditions, such as gold, which has returned 6% year to date, a hedge against inflation however with rates rising and geopolitical tensions, this is a different tune markets are singing.

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